What is KYC For Mutual Funds and Why is it Necessary?
KYC or Know or Your Customer is a practice carried out by companies, banks, and financial institutions to verify the identity of their clients. The process also aims to ensure that the financial institutions and mutual funds are dealing with people who have genuine sources of income and are not into any kind of unlawful activity.
The completion of the KYC process paves the way for an investor to go ahead and open a bank account, start trading or invest in mutual funds. Tools like SIP calculator and EMI calculator help customers identify the amount they need to invest in mutual funds to generate specific returns or the EMI that they will have to pay on a specific amount and duration of a loan.
What Does KYC Involve?
The process of KYC registration for any industry including mutual funds is the process of the identification and verification of a client.
The aim is to ensure that:
- the customer is actually who he is claiming to be before providing him access to the services or products required by him.
- The customer is not indulging in any unlawful activities. This assures the mutual fund company that the funds being invested in their schemes are as per law.
The process involves the submission of documents proving a customer’s identity to avoid fraud. KYC in mutual funds is mandatory as per the provisions of the Prevention of Money Laundering Act 2002. The institution or the bank to which you are submitting your KYC documents can check at any time your past financial records and defaults to ensure that you are a genuine person.
Documents Required for KYC in Mutual Funds
Investors looking to invest in mutual funds will first need to get their KYC registration done. This involves the submission of certain documents:
- PAN Card or Permanent Account Number – This is used to track information related to the applicant’s income and tax details. This helps the mutual fund company to ensure that the applicant’s income is genuine.
- Proof of Name or Identify – This can be proved by submitting a copy of your Aadhar Card.
- Proof of Address – This can be proved by Aadhar card, passport or the latest utility bill.
- Photographs – They provide proof of your facial identity.
- Bank Account Details – This again helps in verifying the source and nature of funds being invested.
How to Do Your KYC?
The KYC process for banks, mutual funds, or any other organization can be done online or offline and the records for the same are maintained by SEBI mandated KYC Registration agencies or KRA.
Through the offline mode, you can submit the filled up and signed KYC form along with the required documents and attested copies of photographs to the KYC registration agencies or the concerned bank or the mutual fund company.
KYC registration can also be done online by uploading all the documents to the funds’ or the banks’ website. The status of the KYC application can be checked by visiting the registration agency’s website by inputting the PAN number of the applicant.
Once the process is complete the investor can start his investment with the mutual fund. You can use tools like the SIP calculator to identify the amount that you need to invest in a mutual fund scheme via the SIP route.